A few days ago in Comm 101 we were discussing how many small businesses fail. I found this very interesting so I decided to do further research on both the percentage of small businesses that fail and why exactly they often do not prosper.
According to this article, http://www.gaebler.com/Small-Business-Failure-Rates.htm, only two-thirds of small businesses survive the first two years, and less than half survive the first four years.
There are many reasons why these businesses fail, and I am going to focus on what I believe are the two most prominent: an inadequate business plan and a poor capital structure.
As we are learning in Comm 101 through our analysis of business plans, it is very easy to make many errors or leave out important elements of the plan, and these mistakes can lead to the financial failiure of the companies. It is essential to consider all of the potential difficulties and problems that could arise when starting a business, and if these are not listed in the business plan then it could be very dangerous for the company.
Secondly, there is the importance of having a strong capital structure plan, which actually relates to a business plan. One of the most common errors in this area is not having sufficient liquidity to sustain the company in times of trouble.
